Daily Market Color

Treasurys Rally as Financial Markets React to Failure of Healthcare Bill

Friday’s decision by the Trump administration to withdraw its healthcare bill is having a big impact on global financial markets to open the week.  Republicans’ inability to agree upon a repeal and reform of the ACA has generated a great deal of skepticism as the party attempts to tackle its next major target, a rewriting of the US tax code.  And as cautioned by House Speaker Paul Ryan, the failure of the healthcare bill “does make tax reform more difficult.”  Treasurys rallied from the onset of the session, with yields/swap rates currently down 2-6 bps across the curve.  The US dollar added to its recent losses, falling 0.4% against major currencies to its lowest level in four months.  Corresponding with the risk-off trend, gold increased 0.5% percent to $1,205/ounce, a level last seen prior to the US election.  Major US stock indices were mixed on the day, as bank shares led declines while stocks in hospitals were among the largest gainers.

This week will again feature a plethora of Fed speeches, with 14 speakers scheduled over the next five days, headlined by an address from Janet Yellen tomorrow.  Today, we received less hawkish commentary from Federal Reserve Bank of Chicago President Charles Evans (voter) who tied his views to the economy’s consumer price levels.  Expressing caution, Evans stated “I still think that one of the larger uncertainties is whether or not inflation is going to get up to 2 percent sustainably in the U.S., and so I don’t want to get out ahead of these rate increases, but I thought that it was perfectly acceptable to get one in March.”  With regard to the jobs market, he did acknowledge that the economy was close to full employment.  Evans also echoed recent Fed speech related to balance sheet unwinding (or lack thereof), not committing to a specific timeline for action, while acknowledging that Fed discussions surrounding the balance sheet unwinding process were taking place.

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